In this article we will discuss about the strategies of the World Bank Group for effective corporate governance. Learn about:- 1. Introduction to the World Bank Group 2. Marshaling Support for Corporate Governance Reform 3. Catalysing Reform through the Global Corporate Governance Forum 4. Sharing Knowledge and Best Practices.
Introduction to the World Bank Group:
The World Bank Group has long been active in supporting client countries in undertaking difficult structural changes requiring reforms of legal and regulatory structures, the financial sector, and enterprises, including privatisation of state-owned enterprises.
These programs have addressed many issues central to corporate governance- creating competitive markets, establishing regulatory and supervisory capability in banking and capital markets, introducing greater transparency, adopting international accounting and auditing standards, and strengthening the competence and independence of boards of directors.
Because a scarcity of qualified professionals often poses the most daunting challenge to effective reform, the Bank has also financed technical assistance operations in support of institutional development and capacity building in many areas affecting corporate governance, including auditing and accounting standards, legal and judicial systems, financial sectors, and capital markets.
The International Finance Corporation too has promoted better corporate governance by requiring that the firms in which it invests practice sound corporate governance and by insisting on proper internal controls and reporting. It has been instrumental in developing equity and corporate bond markets, including listing and securities regulations.
It has provided hands-on technical assistance to transition economies to establish sound systems of corporate governance. Similarly, the Multilateral Investment Guarantee Agency has ensured that its guarantee operations have a high standard of corporate governance.
Marshaling Support for Corporate Governance Reform:
The Bank Group is scaling up its work on structural reform in developing countries, and corporate governance is a key element in that agenda. The Bank Group’s and others’ objective is to work with partners (multilateral agencies, international organisations, the private sector) to broaden the debate on corporate governance beyond OECD countries to developing and transition economies.
While the Bank Group will respond to the growing needs of client countries to adapt international best practices to their own circumstances and to implement legal and regulatory reforms, it will not be in the business of setting standards or creating codes.
Rather, it intends to marshal support nationally, regionally, and globally for countries’ own initiatives. This work will be supported by a more concerted emphasis on governance by the Bank Group in its ongoing policy, lending, technical assistance, and private sector activities.
At the national level, the Bank and its partners have supported a series of country self-assessments that identify strengths and weaknesses in corporate governance and help countries establish priorities. Complementing these assessments are investor surveys that identify market perceptions about the same issues. Together, the two assessments paint a clearer picture of corporate governance practices in individual countries, identify priority areas and pressure points, and set the stage for a comprehensive reform agenda.
The twin objectives are to strengthen regulatory reform and enforcement while fostering private voluntary actions. This is consistent with the approach of the Bank’s Comprehensive Development Framework, which emphasizes good corporate governance as a key factor in development effectiveness.
The Comprehensive Development Framework further stresses the importance of the private sector, both local and foreign, as a major player in the development process. It calls for a participatory process that involves all the major stakeholders in the design and implementation of a comprehensive reform strategy.
At the regional level, the Bank has cosponsored with other multinational agencies (particularly, OECD, Asia Pacific Economic Cooperation, Asian Development Bank, European Bank for Reconstruction and Development) and other organisations active in this area, a series of roundtables for government officials, legislators, regulators, local and foreign firms, investors, and rating agencies to help craft a consensus for reform.
On the global level, the Bank Group has worked closely with the OECD to broaden the dialogue on corporate governance beyond OECD countries. The OECD Principles of Corporate Governance would be a starting point—but not a reference point.
The Bank Group has also worked closely with the BIS on banking systems, with the International Organisation of Securities Commissions on harmonising listing requirements, and with the International Accounting Standards Committee and the International Forum for Accounting Development on transparency issues.
It has supported the World Trade Organisation and the International Labour Organisation on competition policy and labour issues. In the private sector, it has engaged the major accounting and auditing firms to ensure that their affiliates, which carry their name and reputation, adhere to the same international standard and guidelines.
Catalysing Reform through the Global Corporate Governance Forum:
A good part of the knowledge and expertise needed to support corporate governance and related reforms already exists in the public and private sectors. A wide range of organisations has begun focusing on corporate governance. Although many of these efforts are still small and dispersed, together they account for substantial and diversified international reform efforts.
If the corporate governance agenda is to be scaled up properly, a major effort is needed to distill this expertise and marshal it in a coordinated and timely way to support countries’ efforts on both regulatory and voluntary fronts.
In a major step in this direction, the World Bank Group and the OECD signed a Memorandum of Understanding on June 21, 1999, to sponsor the Global Corporate Governance Forum. The forum will bring together other multilateral development banks, bilateral and international organisations, the IMF, the Commonwealth. Asia Pacific Economic Cooperation, International Accounting Standards Committee, International Organisation of Securities Commissions, and the private sector.
It will provide a rapid response mechanism for coordinating and channeling practical technical assistance to specific constituents, on a national, regional, and global basis, to help design and implement reforms. Above all, the forum will mobilise local and international public and private sector expertise and resources to and advance corporate governance on a fast track, emphasizing dialogue and consensus building.
The forum will build on what has already been achieved to help countries develop their own programs and institutions.
To this end, the forum’s activities will include:
a. Broadening the dialogue to include perspectives from developing and transition economies.
b. Supporting countries in carrying out self-assessments and investor surveys of other status and practice of corporate governance.
c. Building consensus for policy, regulatory, and institutional reforms at global, regional and local levels.
d. Framing corporate governance strategies to take full advantage of the potential for private sector involvement.
e. Developing the capacity of governments to design and implement reforms and the capacity of self-regulatory bodies to develop and execute their own regulations.
f. Strengthening reputational agents.
Sharing Knowledge and Best Practices:
1. Developing human capacity and building institutions to sustain and expand corporate governance practices.
2. Addressing corporate governance issues that go beyond a specific country.
In implementing this ambitious agenda, the forum will be advised and supported by a high-level Private Sector Advisory Group. Leaders and captains of industry with established track records in corporate governance will lend their names and reputations to efforts to bring key stakeholders to the table to build a coalition for reform.
The forum will also provide a channel for extensive consultation with important stakeholders (labour, organisations active in corporate governance, environmental agencies, NGOs, and others) and build on efforts already begun through roundtables and consultative groups.
Time is short. Crises highlight challenges and offer opportunities for governments and the private sector to change behaviour and the rules of the game. But while reforms are most often initiated in the wake of crisis, they should not be viewed in the context of a short- term anti-crisis package. Change will take a concerted effort in building consensus and sharing experience, expertise, and resources among all players.
Above all, the private sector must see that implementing reform is in its own best interest. Likewise, reform of the public sector is central to an effective partnership. Because reforms are likely to yield results only over the medium to long run, sustainability and comprehensiveness in design and staying power during implementation are critical.